Advanced Microeconomics/Homogeneous and Homothetic Functions

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Homogeneous & Homothetic Functions[edit | edit source]

For any scalar a function is homogenous if A homothetic function is a monotonic transformation of a homogeneous function, if there is a monotonic transformation and a homogenous function such that f can be expressed as

  • A function is monotone where
  • Assumption of homotheticity simplifies computation,
  • Derived functions have homogeneous properties, doubling prices and income doesn't change demand, demand functions are homogenous of degree 0
  • The slope of the MRS is the same along rays through the origin

Example[edit | edit source]